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Financiers have not changed

“In finance, during the late nineteenth century and early twentieth century, whether in London or New York, Berlin or Paris, there was one great divide. On one side stood the big Anglo-Saxon banking firms: J. P. Morgan, Brown Brothers, Barings; on the other the Jewish concerns: the four branches of the Rothschilds, Lazards, the great German Jewish banking houses of Warburgs and Kuhn Loeb, and mavericks such as Sir Ernest Cassel. Though the WASPs were, like so many people in those days, casually anti-Semitic, the two groups treated each other with a wary respect. They were all, however, snobs who looked down on interlopers. It was a society that could be smug and complacent, indifferent to the problems of unemployment or poverty…” [Source: Page 10, “Lords of Finance’ by Liaquat Ahamed]

I have completed two sections of the book. It is a great read and a marvellous lesson in history with the utmost contemporary relevance.

What resonates from this paragraph is the indifference to the broader society that seems to characterise their response to the tax-payers in the current crisis. So, in some sense, it is ‘refreshing’ (?!) that in a fast changing society, somethings remain constant.

I was prompted to highlight this paragraph after reading two brilliant pieces in FT last week, one by Martin Wolf and oneby Gilian Tett. For the second time in a week, Martin Wolf had hit the ball out of the park. He sounds angry and passionate and hence the piece has the added edge in purpose, in effectiveness. Sample these two paragraphs:

A recent report on the future of UK international financial services, produced by a group co-chaired by Sir Win Bischoff, former chairman of Citigroup, and Alistair Darling, chancellor of the exchequer, fails to provide such self-examination. This is partly because the committee consisted of the industry’s “great and good”. It is far more because Mr Darling had already decided that “financial services are critical to the UK’s future”. Thus, the report’s remit was “to examine the competitiveness of financial services globally and to develop a framework on which to base policy and initiatives to keep UK financial services competitive”.

If you ask the wrong question, you will get the wrong answer. The right question is, instead, this: what framework is needed to ensure that the operation of the financial sector is compatible with the long-run health of the UK and world economies? [Read the full stuff here]

The piece by Gilian Tett is about the likely US banks’ response to the PPIP. How remarkably have expectations been managed down to nothing!

Most notably, irrespective of the complexities of arranging deals, the PPIP has already served one extremely valuable function by highlighting the sheer insanity that has bedevilled the financial world in relation to asset prices.

Most notably, if large American banks had previously marked their assets at a realistic market-based price, they would not be so scared of engaging in auctions with PPIP now. Better still, they might have spotted earlier the degree to which their assets were deteriorating – and taken action to address it.

But precisely because the supposedly “free market” western financial system has become stuffed with complex assets that were rarely traded – even during the credit boom – banks have been able to use fantasy prices for their assets for years. Hence their continued horror at the idea of open trading.

Of course, she could have avoided using the phrases, ‘Most notably’ and ‘Better still’ twice in succession – mistakes that we all do, when we are rushing to meet deadlines. But, that is a quibble.

She homes in on the real issue in those three short paragraphs. So, the truth is that the banks are determined to continue with status quo in all respects.

Crises – certainly the one that we faced last year – used to be thought of as cathartic. But, that seems eons ago.